Tuesday, September 17, 2013

Dividends & Income - COP a well oiled money machine

Conoco Philips (COP) is truly a well oiled money
machine.

I am not profiling this stock
as a dividend machine because it is already included in the 2013 Dividend stock
portfolio.By the way, COP was a
Dividend Machine in 2011 as well.The
point of this post is to illustrate the money making potential of a company
like COP.

COP has provided a consistent
dividend, it gave 2011 holders an extra 50 shares of Phillips Refinery (PSX)
and as you will see below, COP has call option income opportunity.

RISK
of LOSING COP

COP is at historical highs trading close to $70
today.Even at this high price, the
dividend yield is still 3.94%.When I
own a stock that is at a record high and I have significant profit, I try to
work it for even more income by using covered calls.

My theory is that if I lose the stock, there is
always another stock to buy.But, can I
really find another stock that can deliver the returns that COP has?Maybe I can find one, but probably not with
the market at these lofty levels.I may
have to wait for a correction to find a good replacement.

If I am going to take the risk that I lose COP to
the call buyer,I want to make sure the
strike price is greater than the all time high and I want the call out far
enough that I get the next expected dividend.COP’s next expected ex-dividend date is October 11, 2013 and that
dividend should be $.69.

COP
Covered Call Calculations

I am going to show you two covered call options
using two different cost bases.First
let’s look at how you would fare if you had bought COP when it was first
profiled as Dividend Machine on May 16, 2011 and you sell a November $72.50 for
a premium of $.50 or a January $75.00 call for a premium of $.66.

Next, look at the result if you bought COP as a 2013 Dividend Machine when it
was profiled on April 9, 2013, using the same two
calls.

Finally, what if you bought COP today?See this table to determine your return.

Only you can decide if you want to trade into or out
of a stock or when you are willing to risk losing a great Dividend Machine like
COP to a call buyer.

I still work my
portfolio constantly and this post illustrates the analysis you can perform to
help you make good income investment decisions.

I will not add COP today but I am going to sell the January call on some of my position (cost basis is $55.37.)

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Covered Call Opportunities

Square, symbol SQ, is my current favorite stock that is not a dividend machine. To turn it into an income investment, I use SQ's volatiity to buy when it dips and sell calls. See the table above. Note that this call is not included in the post published on 12/12/18 M*

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TheMoneyMadam's Story

My income investing success came from my experience managing my and other people's money since 1993. Successful income investing requires discipline. In this blog I provide specific investments based on my principles of conservative income investing. I hope to help the thousands or even millions of people who have saved and want to invest their nest eggs to retire with income that grows. M* MoneyMadam

Disclaimer

Information on this blog does not constitute investment advice. Review or mention of any stock, bond, or other investment shall not be considered a buy or sell recommendation. Everything in this blog is the opinion of the author and no warranties are expressed or implied. M*MoneyMadam.